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. Last Updated: 07/27/2016

Foreign Banks Jostle to Lend to Russians

Foreign lenders are lining up to finance a boom in syndicated borrowing by Russian firms, with no shortage of takers for several large deals in the energy sector in particular, bankers said on Monday.

In Russia, "2005 has in every regard been a mega-year for financing," Steven Fisher, head of emerging markets corporate bank at Citigroup in Russia, told a conference in Moscow.

In the biggest deal, gas giant Gazprom has agreed to borrow $13.1 billion from a consortium of Western banks to fund its takeover of oil firm Sibneft.

The six banks -- ABN Amro, Dresdner Kleinwort Wasserstein, Citigroup, Morgan Stanley, Goldman Sachs and Credit Suisse First Boston -- will take the debt onto their balance sheets except for $2.5 billion, which they will start syndicating soon.

One banker said a roadshow could begin within the next few days, but a source close to the situation said demand was so strong that there might not be the need for a roadshow to drum up business.

The banks might simply sell the debt to those who have already shown interest, offering tickets of varying size in a one-stage syndication.

"I don't expect it to be a hard sell," the source said. One banking source said he expected the ticket size to be "$100 million plus," with up to about 20 banks in the syndicate.

The apparent rush to buy up Gazprom's debt follows similar interest in $7.5 billion of debt raised by Rosneftegaz, a holding company that the state is using to buy back shares of Gazprom and partially privatize state oil firm Rosneft.

A banking source said that deal was well oversubscribed and would close soon, with banks rushing for tranches of debt that came in tickets of $500 million, $300 million and $150 million.

Although the biggest deals were in oil and gas, other sectors were also taking advantage of the appetite for Russian debt, especially in quasi-sovereign borrowers such as Russian Railways, or RZD.

Telecoms, transport and power firms are also widely tipped to keep the supply of loans flowing, while existing lenders are also expected to return to the market to take advantage of the declining cost of syndicated borrowing.

RZD is expected to formally sign a $600 million syndicated loan in the next few days, arranged by Dresdner, Raiffeisen, HSBC and Barclays. A banking source said there had been enough demand for RZD to borrow $1 billion.

However, some bankers warn investors against irrational exuberance and say Russia's mix of state intervention and corruption can make for a difficult environment, while a lack of borrowers defaulting makes it hard to predict how a default would affect the market.

"The Russian loan market has a lot of tourists," said Lorenz Jorgensen, head of syndications at the European Bank for Reconstruction and Development. "They may end up in the wrong part of town and get mugged."

 Gazprom's state-controlled board of directors has approved its $13.1 billion takeover of oil company Sibneft, Gazprom said in a statement on Monday.

The statement quoted Gazprom chairman Dmitry Medvedev as saying the deal would increase the competitiveness of Gazprom, the world's largest gas producer, and allow it to compete with global majors on the oil markets.